Third quarter sales rose 1% on a comparable basis. That was entirely driven by the Europe, Middle East, India and Africa region, with Burberry singling out Europe as performing well. There was a decline of 23% in Mainland China because of Covid disruption. The Americas fell 1%.
Excluding China, accessories and leather goods did well and there's been a good reception to new ranges. 15 stores were updated to the group's new concept in the quarter, taking the total number of refits to 84.
Burberry's medium-term targets are unchanged. These include high-single-digit revenue growth, and improving per-unit-costs. Adverse exchange rate movements are expected to reduce full year underlying operating profits by £70.
The shares were unmoved following the announcement.
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Our view
Burberry's been busy over the last few years. Now the hard work is done, it's more important to focus on how the long-term picture's shaping up. If the third quarter's 1% rise in comparable sales is anything to go by, the view seems underwhelming.
But it's not as simple as saying things have been derailed. Mainland China is responsible for a big chunk of revenue, both within its borders, but also from Chinese tourist spending abroad. Performance is being dented by restrictions in China, and a broader weakening of the economic outlook. This is out of Burberry's control, and if the reopening of China goes to plan, should be seen as a temporary blip.
Away from China, Europe is doing very well. Demand for accessories and leather goods is positive. That suggests Burberry's doing everything right behind the scenes, and the creative success should result in a boost to the Asia Pacific region when trading gets back to normal.
Ultimately, Burberry's efforts to be seen at the top end of luxury fashion has proved a shrewd move. New products and ranges have been well received, with the important categories of Leather Goods and Outerwear doing well.
Plus, luxury fashion is all about image, and elevating the brand will pay dividends in the form of higher prices and stickier customers. Those luxury customers also help in a different way. With inflation continuing to surge, it's worth remembering luxury customers tend not to be as swayed by economic ups and downs, including when money in the bank is losing its value at a faster rate than normal.
Investment is a key part of reinvigorating the Burberry brand, so investors shouldn't be expecting a total about-turn in bottom line growth just yet. The market will be watching operating margins like a hawk - the group's plans are admirable here, but executing a reduction on per-unit-costs to this degree is a very tall order.
The group's balance sheet is in reasonable health, with net debt well below the higher end of the target range of 0.5-1.0 times underlying cash profits (EBITDA). That not only provides the fuel for store and product investment, but means the group is comfortable enough to restart shareholder returns. Dividends are back, and currently at a higher level than pre-pandemic. No dividend is ever guaranteed.
Overall, we're pleased with progress. Given the underlying reaction to new ranges and the uptick in full price sales, we think Burberry's in a good position to boost sales, margins and ultimately profits in the longer term. That said, the short-term is fraught with some real challenges, and we'd like some proof of sustained delivery on sales expansion before popping any champagne. That uncertainty isn't necessarily reflected in the current valuation.
Burberry key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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